Pop quiz: What do you know about saving?

It is Financial Literacy month, which means it is time to reflect on what you know (or don’t know) when it comes to your finances. Remember, knowledge is power. Knowledge gives you power by giving you options that make for sound financial decisions.

Registered Retirement Savings Plan (RRSP)

You’ve likely heard about RRSPs. You may even have one. But what do you really know about them? For starters, many people don’t know that an RRSP isn’t actually an investment. It’s a tax tool that lets you save for your retirement. You get to choose from a number of different investments (like cash, stocks, mutual funds, GICs, etc.) to hold within that RRSP. The earnings from those investments grow tax free over time until you withdraw them for retirement- when theoretically, you’ll be in a lower tax bracket. The government also gives you tax credits for your RRSP contributions.

Fun fact. RRSPs are not just for retirement. You can withdraw from them as a first time homebuyer to use for a down payment for your home. Planning on going back to school? You can also withdraw from your RRSP to pay your tuition.  There are limits around both of these and repayment of withdrawals is required.

Registered Education Savings Plan (RESP)

Speaking of education, have you done any thinking (or active savings) towards your child’s education? As any parent knows, time flies- and before you know it that little one will be heading off to college or university.

An RESP is a win-win investment. It’s an account that lets you accumulate savings specific for your child’s education; at the same time, the government will give you a grant every year, based on your contribution, to a maximum of $400 a year that helps your savings accumulate.

TFSA (Tax Free Savings Account)

The RRSP isn’t the only way the government tries to encourage you to save. A TFSA is a like an RRSP in the sense that the investment in it can grow over time tax free (just like the name says) but you don’t get a tax credit (like you do with an RRSP). It’s also similar to an RRSP in the sense that you get to choose what investments go in it. It’s different in that the income that accumulates isn’t taxed, even when it is withdrawn